Letter from... Malaysia

As part of its efforts to boost company listings on Bursa Malaysia, the Malaysian Stock Exchange, its regulating and licensing authority, the Securities Commission (SC), is instituting new measures that will take effect from 2 January 2008. The eight initiatives are: greater flexibility for dual listing; removal of the mandatory profit forecast requirement; streamlining of regulatory criteria; aligning rules for cross-border listing; approval of asset acquisition by listed companies if there are no changes in controlling shareholders; permission for the Malaysian Exchange of Securities Dealing and Automated Quotation (Mesdaq) companies to undertake acquisitions that may change their business direction; orderly post-listing price discovery for initial public offerings (IPOs); and a public exposure period for IPO prospecti.

These efforts are indicative of the move to streamline Bursa Malaysia's operations with international best practices. They are also intended to promote greater transparency where IPOs are concerned. Bursa Malaysia recorded 25 listings in 2007; it is hoped that, with these initiatives, 2008 will see at least 40 new listings.

Overall, the initiatives are designed to attract more foreign participation as current rules become aligned with more widely-accepted international standards, without compromising on security. As an example of greater flexibility for dual listing, full trading fungibility across Bursa Malaysia and other exchanges will soon be realised. Companies may list their entire issued capital to this end.

As cross-border listing rules are aligned and cross-listed shares become fungible, cross-border mergers and acquisitions will also be facilitated. Buyers can expect to see a simplification of the trading process. Aligning rules for cross-border listings will allow companies to list even if they are incorporated outside Malaysia.

Foreign companies intending to list on Bursa Malaysia must, however, provide the same standards of shareholder protection currently available in Malaysia. These must be stated in their Memorandum and Articles of Association. Should listed companies wish to acquire assets, the SC's approval will no longer be necessary, provided these moves do not effect a change in the company's shareholders, board of directors or core business.

This is widely recognised as one move that will reduce the regulatory burden on companies and facilitate merger and acquisition activities. However, the acquisitions must be made for cash, not issuance of shares, the SC's chairman, Zarinah Anwar, said.

In addition to this, companies will no longer have to provide the mandatory profit forecast previously required by Bursa Malaysia. Instead, company directors must provide ‘robust information' based on management discussion and analysis of the company's finances, its operations and long-term prospects.

A move in this direction will have a two-fold effect. It will increase directors' accountability for the information about the company that may be issued before listing, while providing potential investors with access to wider, more relevant information before they make their decisions.

The market can therefore look forward to increased investor awareness and a higher level of investor education, vis-à-vis company fundamentals, as buyers begin to take more responsibility for acquiring the relevant knowledge about their intended investments. They will actually have to read the prospectus, instead of just relying on what numbers tell them, before they decide where to park their money.

Besides increasing buyer awareness and education, this particular move may match supply and demand more effectively and result in more stable and orderly pricing mechanisms. However, the profit forecast requirement will be retained where corporate proposals involving distressed listed companies are concerned.

Bursa Malaysia comprises the Main Board, Second Board and Mesdaq, where primarily technology-based companies seek to be listed. Recognising that companies need to expand their businesses, changes have been made to benefit Mesdaq-listed companies as well.

Previously, only Mesdaq-listed companies were allowed to acquire the assets of other distressed Mesdaq companies. With the new ruling, this regulation has been liberalised and companies on the Main and Second Boards may now acquire assets of Mesdaq-listed companies.

The market response to the SC's initiatives has been positive so far, with analysts lauding the move as a positive step towards increasing the regional competitiveness of the Malaysian Bourse. Although the effects of the initiatives are yet to be seen or felt, some market watchers are expressing cautious optimism that 2008 will see the burgeoning of the Malaysian capital market as more global players sit up and take notice of what the country has to offer.

Majella Gomes is a business writer with a background in corporate communications and IT.